Monday, November 15, 2010

Australia's mining tax is too low, our Goods and Services Tax should be lifted and extended to food and our approach to building the National Broadband Network conflicts with "multiple" international studies.

While praising Australia's economic management during the crisis our latest report card from the Organisation for Economic Co-operation and Development is scathing about the Gillard government's pet programs and raises the prospect of it frittering away the proceeds of the mining boom.

The Paris-based organisation also warns against restricting immigration, says Australia's unemployment benefit is too low and warns we need to start an emissions trading scheme "sooner rather than later".

The views, in a 160-page report released Sunday will be widely assumed to be those of the Australian Treasury and mirror and extend those in its incoming government brief released under Freedom of Information laws. The Treasury has an officer permanently stationed with the OECD in France and and extensively briefed OECD officials when they visited Australia.

While completely supporting the idea of the minerals resource rent tax the report says the compromise announced by Prime Minister Gillard ahead of the election sets the bar so low... "taxation of profits of mining companies is likely to remain much lower than before the mining boom".

By limiting the new tax only to two commodities - coal and iron ore - the new regime will distort the incentives facing other resource projects regardless of their merits.

Particularly problematic is Australia's plan to spend all the expected revenues from the tax. Should resource prices fall faster than expected the Budget will be exposed. The OECD suggests creating a reserve fund along the lines of those in Chile and Norway to warehouse the mining tax windfall.

The OECD repeats many of criticisms of Australia's tax system made in the Henry Review, but says what the review could not because of its terms of reference - that Australia's rate of GST is "low by international standards" and that it could be extended by removing exemptions including childcare, health services and fresh food.

While supporting the planned National Broadband Network as having the "potential to significantly improve internet services within a
relatively short time frame" the report is damning of means by which it will be set up saying they are designed to "eliminate competition" with the existing Foxtel cables and Telstra wires.

"This implies a de facto restoration of a public monopoly over the supply of wholesale internet services," the report says. "Multiple empirical studies have stressed the value of competition between technological platforms for the dissemination of broadband services."

The OECD implores the government to take a "a prudent approach" rather than a "picking-the-winner strategy" which destroys competing platforms.

"To develop fibre optic networks more gradually than under the government program would also allow a better assessment of the new network’s costs and potential benefits and the potential positive externalities," the report says.

Coalition broadband spokesman Malcolm Turnbull said the report backed up the points he had been making including the need for a cost benefit study.

Minister Stephen Conroy said other networks would be shut down as part of a "commercial decision" made by Telstra as part of its agreement with NBN Co. It would be scrutinised by the Competition Commission.

The OECD also stressed the importance of maintaining "an open, demand-driven immigration policy" to help meet skill shortages, said Australia's unemployment benefit was at risk of becoming inadequate given "additional attention given to disadvantaged groups," and for a price on carbon "sooner rather than later" in order to kick-start stalled energy projects.